Vol. 10 No. 56                          THE GLOBAL AIR CARGO PUBLICATION OF RECORD SINCE 2001           Tuesday June 14, 2011

St. Louis Air Cargo—An Aerotropolis Too Far?

     In USA, if one believes its proponents – and one shouldn’t – the Midwestern State of Missouri Legislature has exhausted its session before it had time to commit funds that would enable St. Louis Lambert International Airport to become the Midwest China Hub.
     But some think that this bid may be an “Aerotropolis Too Far,” a bad idea or maybe even a big, fat lie.
     “How?” you might ask and if so, you’d already be more diligent than legislators who supported about $400 million in public subsidies for this white elephant in waiting.
     That the State of Missouri has already wasted state and federal public dollars provides a case of carelessness and impropriety of the sort inspiring taxpayer revolts across the state and nation.
     St. Louis area business leaders and airport operators propose to divert regional air cargo now dominated by Chicago O’Hare International Airport to what locals call the “Midwest China Hub” and “the Big Idea”. Rather than test the likelihood of the hub’s success, proponents and their enablers simply assume Lambert will attract the required service and then promise benefits based on that success. The proposition’s champions and their consultants performed a meager analysis. Shockingly, the State of Missouri has already directed millions in public money on that basis and the Missouri Legislature almost approved hundreds of millions in additional support without any independent analysis.
     Had an independent analysis been conducted, overwhelmingly critical concerns would have been exposed.      Mere context is damning enough. According to Airports Council International – North America, St. Louis ranked 39th among North American airports end of calendar year 2010. By comparison, Kansas City International Airport was ranked 45th and until 2009 had led St. Louis for a decade. In fact, St. Louis not only trailed Kansas City but also Des Moines. During a decade that found the U.S. air cargo industry in collapse, St. Louis’ annual air cargo volume declined 20% comparing 2010 levels with calendar year 2000. St. Louis’ air cargo slide is not atypical of the industry but nothing suggests it is in expansion mode.
     Worse, an unprecedented surplus of on-airport air cargo capacity exists after a decade of nationwide contraction that witnessed the disappearance of such formerly common on-airport all-cargo names as Airborne Express and Emery Worldwide, as well as sharp contraction by BAX Global and DHL. Medium-sized U.S. airports are fortunate to still have both UPS and FedEx. The two integrated carriers account for at least 90% of air cargo at most U.S. airports, including St. Louis.
      With hubs in Louisville and Memphis and regional hubs in Rockford, IL and Indianapolis, IN, neither UPS nor FedEx (respectively) have any foreseeable need for a significantly expanded role at Lambert. Even St. Louis’ champions concede that point but without registering that therefore their cargo efforts must advance without carriers that presently account for almost all of their already unimpressive market. Almost all examples of successful alternative gateways in the U.S. are anchored by one of these integrated carriers.
     During the same period, the passenger industry also contracted with TWA acquired by American, Continental by United and Northwest by Delta. These consolidations created additional surplus on-airport cargo space and in the skies, also affected capacity because space offered in bellies of passenger aircraft is critically important to international air cargo transport. Dominant Asian and European air cargo carriers operate both passenger and cargo flights, maximizing their efficiency by providing both whenever possible in gateways like Chicago. Freight forwarders – who account for the majority of international air cargo bookings – rely on gateways to provide the maximum in network connectivity but St. Louis’ proponents hope forwarders will ignore superior flight frequencies, international destinations and mix of operators (both all-cargo and belly-offering passenger carriers) at Chicago O’Hare.

Webber—"Missouri should not only abandon consideration of future funding, it should seek to recover what has already been wasted. Legislators and state bureaucrats, as well as members of the media who lazily parroted talking points, should repent for having so carelessly treated a potential obligation of hundreds of millions of taxpayer dollars, even as so many much more worthy priorities confront Missouri."

Guenter Rohrmann, Building China Hub For St. Louis— in December 2009 the St. Louis Post Dispatch reported "Mr. Rohrmann last month agreed to a $931,000 consulting deal to persuade manufacturers and air freight companies that St. Louis is a good place from which to ship cargo overseas, particularly to China."

     St. Louis’ big idea is a $400 million speculative venture that from inception excludes participation from global integrated carriers DHL, FedEx and UPS that account for about 90% of the current St. Louis market but already have established hubs in the region. Worse still, it will compete with Chicago O’Hare, which hosts international and domestic passenger hubs for American and United Airlines, as well as international gateway operations for numerous Asian, European and Latin American passenger carriers. O’Hare also hosts freighter operations from many of these passenger carriers, as well as international all-cargo airlines such as Japanese operator Nippon Cargo Airlines and European all-cargo power Cargolux.
      Before St. Louis even begins, almost all of the domestic and international market has already been excluded! Moreover, contraction in the Chicago market (not nearly as bad as St. Louis’ 20% but still about 6% for O’Hare over the same 2000 – 2010 period) and one of America’s most ambitious expansion programs will greatly enhance the proven gateway’s capacity and not coincidentally its operating efficiency. Unlike St. Louis, Chicago’s program has already been scrutinized and approved by the industry and is in fact, well underway. St. Louis entirely speculative “big idea” will confront a proven dominant competitor in peak form.
     With no evidence, “big idea” champions believe shippers need an alternative to O’Hare, suggesting that international air cargo shippers are disadvantaged by having to truck freight a few hours past St. Louis to Chicago but many international shippers already truck shipments from the Midwest much further to gateways like Los Angeles and Miami. Trucking company Sterling Transportation Inc. does nothing but truck freight between Miami and Los Angeles to leverage the superior Latin American access of the former and the Asian superiority of the latter. So when trucking economics sustain competitive advantages on segments as distant as Miami and Los Angeles, the distance from St. Louis to Chicago hardly seems excessive.
     “Big idea” proponents offer such testimonials as area cattle exporters being significant resources and beneficiaries of the Midwest China Hub but if such demand exists, St. Louis would at least already have international livestock charter flights. With strong support from the Missouri Department of Agriculture, Kansas City International Airport actually built a livestock-specific export facility in the 1990’s but in roughly twenty years, the facility has been used for its purpose only a handful of times because of a lack of demand. Livestock breeders are able to ship hundreds of future heads of cattle as semen in test-tubes – hardly the basis for supporting scheduled service. Breeding stock of livestock is still occasionally exported “on the hoof” but neither it, nor more common slaughter stock is shipped regularly enough to even remotely anchor this development.
     Given that Kansas City International Airport is roughly equivalent to St. Louis in cargo volumes (having led St. Louis until 2009), is further from Chicago in terms of offering a discrete alternative and has always been perceived by the air cargo industry as much more cargo-friendly, folks in the western half of the state should be infuriated at statewide tax dollars being directed at St. Louis but not that Kansas City should be given another $400 million but rather this idea is a non-starter on both sides of the state. Most air cargo industry experts would likely slot Indianapolis and even Rockford, IL (to name but two) as far better prospects to attract such service than St. Louis or Kansas City.
     By now, one may wonder how Missouri officials ever wasted more than $1 million taxpayer dollars on this effort already – let alone considering another $400 or so million in future subsidies. The St. Louis Business Journal reports that well connected St. Louis area lawyer Steve Stone and his law firm, Stone, Leyton and Gershman, have contracts up to $400,000 from the Midwest-China Hub Commission, the City of St. Louis and the RCGA (St. Louis Regional Chamber & Growth Association) for work related to securing air cargo flights.      Stone’s contract with the China Hub Commission for business consulting is for $15,000 per month ($180,000/year) and his work for the city for writing legislation that will provide tax incentives for the effort is for $100,000. His contract with the RCGA will be between $100,000 and $120,000 this year. As will be detailed momentarily, much of the Commission’s budget comes from state and federal sources, so Stone is being paid by us to lobby for our money.
     Drawing further from the Business Journal’s piece, the commission has an annual operating budget of about $1.5 million, including three major contracts totaling $804,000 per year, including $180,000/year for Jason Van Eaton, the commission’s executive director (and his Spectrum Group consulting firm), and for $450,000 a year with London Export Corp.’s Stephen Perry, a relative of Stone and British exporter whose family has “long and deep experience in Chinese trade”.
     Were this effort solely dependent on St. Louis area funding, it might be less irritating to those beyond its metro area. However, the commission is funded with federal grants and $100,000 annual contributions from presumably statewide entities the Missouri Partnership and the Missouri Chamber of Commerce, as well as most appallingly, the Missouri Department of Transportation and the Missouri Department of Economic Development.
     Project champions tout relationships in China, but relationships with U.S. politicians are what have carried the project. Detailed in “Fired Up! Missouri”4, the Missouri state legislature was lobbied by U.S. Senator Christopher “Kit” Bond (R-Mo.) to appropriate $12 million in federal stimulus funds for the project with $10 million for renovation or construction of a new building and $2 million for developing backhaul.
      As reported in the St. Louis Beacon, the effort was the beneficiary of a $1 million federal earmark requested in the U.S. Senate appropriations bill for fiscal year 2010 by Sen. Bond “for oversight, management, travel and outside support for the Midwest China Hub Commission whose Executive Director is Bond’s own former Chief of Staff, Jason Van Eaton who left Bond’s staff amidst embarrassing disclosures of lavish spending of public money for travel to Asia and far more serious concerns about his pivot role in removing U.S. attorney Todd Graves.
     Besides funding lavish travel for a former congressional staffer whose past includes taxpayer outrages over travel, a cargo director at the airport receives about $150,000 per year - at least 50% more than pay for a comparable position for a major U.S. airport operator – including Los Angeles World Airports and the Port Authority of New York & New Jersey, operating two top twenty cargo airports each.
      Yet the “big idea” folks think that air cargo development at the 39th largest cargo airport in the U.S. is worth at least $50,000 per year more than a similar position at the largest U.S. airports. The sheer audacity of “big idea” champions is further revealed in their including up to 27 million square feet of additional area warehouse space for well-connected local developers to extract additional corporate welfare, including a developer who failed to provide acceptable returns on past incentives. Those 27 million square feet contrasts with regional hubs of FedEx and UPS – much larger than anything St. Louis could achieve – which require only 300,000 to 500,000 sq. ft. With a target of 8 weekly international freighter flights, St. Louis’ cargo facilities need would be closer to 100,000 to 200,000 sq. ft.
     The audaciousness of St. Louis’ bid to rip off taxpayers statewide is particularly galling because provisions exist for St. Louis to make an earnest bid without disgracing itself. Airports operate in a closed funding loop, in which airport-generated revenues are restricted from being diverted off-airport with the caveat that they should also be self-sustaining, rather than depending on local taxes from constituents who may not use the airport.      Airport operators submit to a rigorous long-term master plan and land use planning process that ensures its forecasts must be credible with both the Federal Aviation Administration (FAA) and its tenants, who presumably know the industry. Cargo facilities may be developed by the airport operator, itself, using its internally generated revenues and favorable bond treatment or by partnering with private cargo facilities developers. The ability to attract funding for such development and private partners is an excellent test of the worthiness of expansion, especially when an unprecedented surplus capacity of on-airport cargo facilities already exists. Yet, St. Louis apparently needs to circumvent the vetting of the FAA, of its airline tenants and especially of analysts not already in the pocket of their “big idea” cronies.
     Rather than merely revise the scale of this project, Missouri should recognize that it has been hoodwinked so badly that not only should the State abandon consideration of future funding, it should seek to recover what has already been wasted. Legislators and state bureaucrats, as well as members of the media who lazily parroted talking points, should repent for having so carelessly treated a potential obligation of hundreds of millions of taxpayer dollars, even as so many much more worthy priorities confront Missouri.
Michael Webber

Editor's Note: Michael Webber is the president of Webber Air Cargo, Inc., a consulting firm primarily serving cargo planning needs of airport operators and civil aviation authorities. While U.S.-based, he has completed multiple projects in Asia, Africa, the Middle East and Latin America. On a consulting basis, he previously managed cargo affairs for Airports Council International – North America. He has recently completed cargo assignments for airport operators in Chicago, Los Angeles, Miami, New York, San Francisco and Vancouver, and has additional assignments underway for the City of Chicago Department of Aviation, the Miami-Dade Aviation Department and the Alaska International Airport System. Webberaircargo@aol.com

BIFA Rolls Back CASS Dictate

     Changes are afoot starting July 1, as the International Air Transport Association’s (IATA) Cargo Accounts Settlement System (CASS) in Europe will dump the bank guarantees requirement. This, after forwarders led by British International Freight Association (BIFA) argued that the fees were inappropriate.
     During the global financial crisis, the guarantee requirement for forwarders was enforced, reportedly with some European forwarders having to undergo a financial assessment and, as a consequence, provide CASS with a bank guarantee.
     In a press release, BIFA claimed one member was faced with having to provide a £400,000 guarantee.
     BIFA Director General Peter Quantrill said this blanket move was one that had to be challenged, both for the sake of BIFA members and the wider freight forwarding community.
     At a meeting of the European Air Cargo Program (EACP) Joint Council in February, a small working group was set up to consider changes to the financial criteria; it consisted of representatives from BIFA, FIATA and IATA.
     The change means that forwarders that comply with the terms of the CASS agreement will no longer be required to provide bank guarantees, nor provide additional sums after this date except if they default on the CASS payment terms in the future.
     BIFA’s Director – Trade Services, John O’Connell, who led the trade association’s efforts on this initiative, adds:
     “It was intolerable that forwarders were faced with the reinstatement of this requirement, irrespective of the fact that the members in question had been hitherto wholly compliant to the prescriptive payment terms and conditions of the CASS before, during, and after the financial crisis is being put behind us.”

     This will probably come as little surprise to forward thinking people in Dubai UAE (and some other places), where a long time ago planners went out to vast, unused areas and latched onto the dream of creating something completely different, like the emergence, for example, of Dubai World Central where the new Al Maktoum International Airport is located.
     But now the new word for mixed use real estate near an airport is Aerotropolis, and not only is the name slick and in line with H.G. Wells “Things To Come,” now that the word has been invented, Aerotrop is moving at viral speed up into the main stream of airport talk, especially when looking for a new airline or something to do with thousands of unused acres around air gateways worldwide.
     “Aerotropolis” in 2011 is the on the go description of what makes “flying into our gateway great.”
     “We are creating an Aerotropolis,” developers say as they try and combine the perfect mixture for a recipe of office, retail and residential space.
     Who knew that in 2011 it would be cool to live not only near but also right in the middle of an airport?
     All of this Aerotropolis buzz should be music to the ears of the thousands of people who live just off John F. Kennedy International Airport (JFK) in Queens, New York. The airport is off of Rockaway Boulevard, a truck route that skims about a mile and a half of the borders of JFK and accesses even more Aerotropolis in a place called the Five Towns.
     How neat is it to have airplanes, 20 wheelers and front yard kids with pinwheels all moving together easily through the Summer breezes?
     Or for people in Queens, New York to be able to think that they were living in a cool tomorrow kind of place even before they knew it?
     But seriously, The Aerotropolis, which sounds like the name of a Greek Diner that used to be located at Farmers and Rockaway Blvd. in the cargo area off JFK, but is apparently unlike that place because it was turned into a McDonalds, is here to stay.
     Just ask airport people in Memphis, Dallas Ft. Worth, St. Louis, Indianapolis, Denver, Winston-Salem or Detroit. Right away you will discover Aerotropolis figures big into future urban development plans at various U.S. and a growing number of international cities as well.
     Even the airport operator at the aforementioned JFK International Airport announced recently that they were sponsoring a study on future airport development, although with hundreds of acres of derelict air cargo terminals and other dilapidated buildings to deal with at JFK, planners have stopped short of tagging their effort as building an Aerotropolis.
     But not all airports are candidates to be the centerpiece of an Aerotropolis.
     David Prosperi, an urban planning professor at Florida Atlantic University told USA Today:
     “It (Aerotropolis) has become very much a fad.
     “Virtually every city wants to do an Aerotropolis.
     “The problem is everyone is doing that.”
     Joshua Schank, CEO of Eno Transportation Foundation, said that airport-city developments with a focus on walkability and public transportation have a better chance of succeeding.
     “It's hard to have an Aerotropolis that's auto-centric,” Schank says.
     “What makes cities interesting and dynamic is that they're not just about cars.
     “People don't want to live next to airport because it's not a pleasant place.
     “It looks industrial. It looks sprawled out.
     “And they don't want to work in a place like that," Eno's Schank says.
     “(Developers) think humans are automatons and will just go where it's most convenient. But will people pay a premium to live next door to an airport?
     “I doubt it,” he said.
     John Kasarda, a professor of urban planning at the University of North Carolina defined the term as more than a place for planes to come and go.
     “It is a destination in its own right,” he told the New York Times in 2006.
     “The Changi Airport in Singapore, for example, contains cinemas, saunas and a swimming pool.
     “In Dubai, the World Central International Airport and its environs, which are under construction, will contain office towers, hotels, a casino, a golf course, housing for workers and what promises to be one of the world’s largest malls.” (The price tag: $33 billion.)
     It would be interesting to see exactly where that much ballyhooed Dubai project is as we write this today.
     Stay tuned for that.
     In the meantime, some deeper reading into all of this can be found in a new book titled “Aerotropolis” by the aforementioned Kasarda and Greg Lindsay.
     Aerotropolis starts out with this interesting quote from English science fiction novelist J.G. Ballard

     “I suspect that the airport will be the true city of the 21st Century.
     The great airports are already the suburbs of an invisible world capital, a virtual metropolis whose fauborgs are named Heathrow, Kennedy, Charles de Gaulle, Nagoya, a centripetal city whose population forever circles its notional center, and will never need to gain access to its dark heart.


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